August 17, 2021

By Joseph Coleman
Contributing Editor, Coleman Report

PHILADELPHIA — A panel of SBA 504 experts including Eddie Tuvin, Chief Lending Officer, FSC First (Coleman Report’s BDO of the Year 2020), Linda Reilly (Chief, 504 Loan Program) and Greg Suryadik, (Loan Specialist, SBA) provided great insight into the new 504 Refinancing changes lenders have been waiting for at the 2021 America East Small Business Lending Conference.

Summary of 504 Refinancing Program Updates Per the Economic Aid Act

  • Updates will be effective upon the release of the IFR in the Federal Register on July 29, 2021.  SBA will provide the IFR upon publication in Federal Register and the policy notice and Form 1244 information notice upon release in the SBA Daily.
  • The 60 day comment period on the IFR ends September 27, 2021.

Debt Refinance with Expansion Updates

  • Updated with change from 50% to 100% on amount of existing indebtedness that may be refinanced

Debt Refinance without Expansion Updates

  • Alternative job goals reinstated (job retention and existing jobs may be counted)
    • Not dependent on zero subsidy in order for option to be available
    • No waiver request needed on making refi loans based on 50% of prior year CDC activity
    • Eliminates the prohibition against Premier Certified Lender Program (PCLP) CDCs using delegated authority to approve loan applications for Debt Refinancing without Expansion (except for Same Institution Debt refinancing – see below)
    • Qualified Debt – now 6 months not 2 Years
    • Eliminates from the definition of “qualified debt” the requirement that the borrower be current on all payments for not less than 1 year before the date of the application for refinancing.  Loan on Deferments not required to be brought current to be eligible.
    • Guidance provided on Same Institution Debt definitions, as debt may be a CDC submitting a refinance for a current 504 loan in its portfolio or SID might include a third party lender refinancing a loan in its portfolio.  Same institution debt means any debt of the CDC or the Third Party Lender, or an affiliate of either, that is providing funds for the refinancing.
  • PCLP CDCs may not approve the refinancing of same institution debt under their delegated authority and must submit the application to SBA for approval.
    • May include refinancing of Federal debt under limited conditions
  • An existing 504 loan if both the Third Party Loan and the 504 loan are being refinanced or the Third Party Loan has been paid in full, and
  • An existing 7(a) loan if the CDC verifies in writing that the present lender is either unwilling or unable to modify the current payment schedule.  The existing 7(a) loan may be refinanced in whole or in part.  In the case of same institution debt, if the Third Party Lender or the CDC affiliate as authorized under 13 CFR 120.820 is the 7(a) lender, the loan will be eligible for 504 refinancing only if the lender is unable to modify the terms of the existing loan because a secondary market investor will not agree to modify terms.
  • The refinancing of a Federally-guaranteed loan provides a substantial benefit to the borrower after Eligible Business Expenses, prepayment penalties, financing fees, and other financing costs are accounted for.  “Substantial benefit” will mean that the portion of the new installment amount attributable to the debt being refinanced must be at least 10 percent less than the existing installment amount(s). In calculating the percentage reduction in the new installment payment, prepayment penalties, financing fees, and other financing costs, must be added to the amount being refinanced, but not Eligible Business Expenses. The CDC may request the D/FA or designee to approve an exception to the 10 percent reduction requirement for good cause.  PCLP CDCs may not use their delegated authority to approve a loan requiring this exception.
  • If the loan being refinanced is guaranteed by a Federal agency other than SBA, the CDC must document in writing that the refinancing of the Federally-guaranteed loan is permissible under the other Federal agency’s requirements or is otherwise approved by the other Federal agency.

Form 1244 Changes

  • Etran has been updated and the new form will be available in CAFS.
    • All 504 refinancing projects are required to use the new Form 1244 with their submissions.
    • For loans in process that do not involve refinancing, the CDC will have a 30 day grace period to continue to use the previous version of Form

Updates:

1.  With respect to debt refinancing with expansion, SBA will revise or add the following questions on page 12 that are relevant in determining whether the loan may be processed by PCLP CDCs under their delegated authority:

“1.  Does the Applicant project involve debt refinancing?                                                                   ☐ Yes ☐ No

        If yes, with or without expansion?                   ☐ With expansion ☐ Without expansion

  • If debt refinancing with expansion:
  • Is the debt being refinanced the debt of the CDC or the TPL, or of affiliates of either?   ☐ Yes ☐ No
  • Is the CDC requesting an exception to the requirement that the new installment

       payment be at least 10% less than the existing installment amount(s)?                            ☐ Yes ☐ No

  • Is the CDC requesting a waiver of the requirement that the 504 eligible fixed assets

       collateralizing any debt to be refinanced (or relating the portion of debt being

       refinanced in the case of partial refinance) also collateralize the 504 Loan? )?                ☐ Yes ☐ No

If the answer to any of the questions in 1(a) above is “yes”, then the application must be processed through SLPC and not through the PCLP CDC’s delegated authority.”

2.  With respect to debt refinancing without expansion, SBA removed the following sentence on page 12:  “If debt refinancing without expansion, the application must be processed through SLPC and not through PCLP authority.”  SBA also added the following questions that are relevant in determining whether the loan may be processed by PCLP CDCs under their delegated authority:

“(b)  If debt refinancing without expansion:

  • Is the debt being refinanced the debt of the CDC or the TPL, or of affiliates

      of either?                                                                                                                                       ☐ Yes ☐ No

  • If the debt being refinanced is subject to a guarantee by a Federal agency,

     is the CDC requesting an exception to the requirement that the new installment

    payment be at least 10% less than the existing installment amount(s)?                   ☐ Yes ☐ No

If “yes”, then the application must be processed through SLPC and not through the PCLP CDC’s delegated authority.”

3.  SBA added the following question under question #10 regarding the alternate job goal on page 14 :

“If no, is the project eligible under the 504 debt refinance alternative job goal?                                 ☐ Yes ☐ No”

4.  With the change made by the Economic Aid Act that a debt may be eligible for refinancing if it was incurred not less than 6 months before the date of the application instead of 2 years before application, SBA removed on page 18 the following phrase from the documents that must be submitted as part of Exhibit 20:  “if the debt was previously refinanced within two years of the date of application, copies of the most current debt and lien instruments as well as copies of the debt and lien instruments for the debt that was replaced by the most current debt.”

5.  In describing the Project Funding Sources and Uses under question #8 on page 13, SBA added a separate line for “Land Only Purchase”.  In addition, in describing the economic development objectives that are met by the Project under question #12 on page 14, SBA added references to “Base Closures” and “Minority-Owned Business”.